Question

Answer the following question.

Explain briefly the procedure for allotment of shares.

Answer 1

(1) Allotment of shares means the company allots (to give) shares to the general public. Allotment means the distribution of shares among the applicants.

(2) When a public company wants to issue the shares to the general public, it has to issue prospectus to invite the general public to subscribe to its shares.

Procedure for allotment of shares are as follows:

1. Appointment of Allotment Committee:
   - When the subscription list is closed the secretary informs the Board of Directors to make preparations for allotment of shares. If the issue is par subscribed or under subscribed, the Board can do the allotment of shares.
   - But if the issue is oversubscribed, the Board has to appoint an Allotment Committee to undertake the work of allotment.
   - Allotment committee which consists of Directors and Secretary. This committee decides the basis of allotment and submits a report to the Board. It prepares the formula for allotment of shares.
2. Hold Board Meeting to Decide the Basis of Allotment:
   - The secretary makes the necessary arrangement for the Board Meeting, to deal with the allotment of shares.
   - Board Meeting is held to approve the allotment formula suggested by the Allotment Committee.
   - Once the allotment formula is approved, the application and allotment lists are made.
   - This list contains the names of the allottees i.e. the applicants who will be allotted shares. The list has to be signed by the Chairman and Secretary.
3. Pass Board Resolution for Allotment:
   - The decision regarding the allotment of shares is taken at the Board. Hence, at the board meeting, a resolution is passed to allot shares.
   - The resolution also authorises the Secretary to issue letters of allotment and letters of regret.
4. Collection of Allotment Money:
   - The secretary must need to make the necessary arrangements with the company's bank for the collection of allotment money.
   - The letter of allotment states the money to be paid by the applicant on the allotment of shares.
   - The money has to be paid in the Bank specified by the company within the stipulated time. For all public issues and Rights Issues (from Jan. 2016) ASBA is mandatory.
5. Arrangement Relating to Letters of Renunciation:
   An applicant who has been allotted shares can renounce the shares in favour of another person.
   - The applicant has to fill up a form for renunciation and submit it with the original copy of the letter of allotment to the company.
   - After approval from the Board, Secretary enters the name of the new allottees in the application and allotment list.
6. Arrangement Relating to Splitting of Allotment Letters:
   - Splitting means putting the shares in one or more names. Sometimes, the applicant who has been allotted shares can request for the splitting of allotment letters.
   - After getting the approval of the Board for the splitting, Secretary enters the details of the split in the list of split allotments. Secretary has to also issue split letters.
7. File Return of Allotment:
   - A statement containing details of allotment is called ‘Return of Allotment’. Secretary has to file a 'Return of Allotment with the Registrar of companies within 30 days of allotment of shares.
   - The return of allotment contains details of allotment of shares including the names and addresses of allottees, the value of shares allotted, the amount paid or payable on each share, etc.
8. Prepare Register of Members and Issue Share Certificate:
   - The secretary prepares the Register of members on the basis of share application allotment lists. Secretary has to enter the names of all those applicants who have paid the allotment money in the Register of Members.
   - Secretary also has to prepare the Share Certificates and distribute it to all the members within two months of allotment of shares.
   - A share certificate is issued in exchange for a letter of allotment and receipt of allotment money.